The TSX Index has been a massive underperformer over the last decade. While past performance is no guarantee of future returns, let’s just say that betting on the S&P 500 outperforming over the next decade is probably a wiser move.
In many prior pieces, I’ve slammed the TSX Index for being a poor investment on its own. Passive investors who hold onto the index are not only not getting proper sector diversification (an essential nutrient for any Canadian’s TFSA!), but they were also overweighting themselves in the energy and financial sectors, the former of which appears to be on the wrong side of a secular trend.
Overweighting your portfolio to fossil fuel industries probably isn’t the best strategy if you wish to achieve market-beating results. Fortunately, self-guided Canadian stock pickers can crush the TSX Index and achieve sufficient diversification by selecting the top plays and steering clear of those under pressure, with worsening macro backdrops.
In this piece, I’d like to bring your attention to two proven market beaters that I think are attractively valued at this juncture. Without further ado, consider shares of Alimentation Couche-Tard (TSX:ATD.B) and Metro (TSX:MRU), two consumer staples that have taken big hits to the chins in recent weeks.
Couche and Metro are down 18% and 15% at the time of writing, respectively, from their all-time highs, thanks in part to the drastic shift in risk appetite and a vaccine-driven rotation out consumer staples and into the more cyclical areas of the market. While both firms may not be as sought after now that the pandemic’s end is likely in late 2021, I still think both plays are a wonderful value for those willing to think longer term.
Couche-Tard: A growth king that could crush the TSX Index
Couche-Tard is a convenience store kingpin that plunged on the shocking announcement that it was looking to scoop up French grocer Carrefour, a deal that’s since fallen through. The shocking pivot in acquisition strategy left Couche-Tard stock with an even greater discount on its shares.
While I’m not a fan of management’s timing or its decision to surprise shareholders, I think a pivot into the grocery space makes a tonne of sense. Such a move would have given Couche-Tard’s convenience stores a huge jolt, with better availability and access to fresh food items, among other products that would have better solidified the company’s future position in convenience retail.
Investors and analysts don’t get the deal. But if you’re like me and are looking forward to a potential blockbuster in the grocery arena, I’d look to buy the stock now, while it’s close to the cheapest it’s been in recent memory. Couche is a long-term play that I think is worthy of a correction to the upside, possibly to $62.
Metro: A top grocer that’s been hit too hard
Metro is a Canadian grocer that I view as the gold standard. The firm is incredibly efficient in operating in an industry that’s typically commanded low margins. With a negative beta (currently at -0.15), shares of Metro are more likely to zig when the TSX Index zags. The low to negative degree of correlation to the broader markets improves the chances that MRU stock will be a lone green arrow in the next market-wide sea of red.
With many folks thinking we’re overdue for a correction, Metro stock looks like a great hiding place. Of course, a low or negative beta doesn’t mean the stock is guaranteed to soar when the markets tank or vice-versa. But if you lack a good core and want to further improve upon your portfolio’s risk/reward balance, the out-of-favour grocer, I believe, is a must-buy on the recent dip.
Shares are being punished for all the wrong reasons. The firm did a remarkable job through 2020, and I think a re-valuation to the upside could be in the cards once volatility picks up again.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Joey Frenette owns shares of ALIMENTATION COUCHE-TARD INC. The Motley Fool owns shares of and recommends ALIMENTATION COUCHE-TARD INC.